“You’ve done everything you told us you were going to do,” the VC said.
“Incredible execution,” his partner said.
“We’re going to move forward very quickly on this,” the VC said.
The story was much different the last time I met with this group of investors.
“Brett, you and I have developed a bit of relationship over the past couple months, so I want to tell you what I have been hearing,” the same VC said two years before our second meeting.
“When we started doing reference calls on you (these are “backdoor” references, so you have no control over who they call), they were unusually bad. In fact, they were the worst I had ever seen, so I decided that I would personally start making calls.
“I couldn’t believe how poorly people think of you. So, my young friend, my conclusion is you are not very self-aware. We’ve developed a bit of a relationship over the past couple months, and you are a young man with a lot of career left. You can fix these things if you want.”
I was unnecessarily brutalized, in my opinion, in this meeting by the VC. But here I was two years later, hat in hand, asking them to invest in my company.
The meeting could not have been more different than the last meeting I had with them. This time, they were unbelievably complimentary.
As I went through my pitch, the investor and his partner kept complimenting me on how well we had executed to our plan. It was like the last meeting had never happened.
However that horrible meeting two years ago was very fresh in my mind.
“What about all those people who told you I was a disaster?” I thought to myself. “When are you going to bring that up?”
I kept waiting for the other shoe to drop. But the shoe never dropped. The compliments just kept on coming.
VCs have a saying, “There’s always another round.”
Things change inside of a company. Sometimes the market changes too. Sometimes the company is a little further along. Sometimes things change within the partnership you are dealing with as well.
That’s why you may hear “No” the first time you meet with an investor, but “Yes” the second time you meet with an investor. So what’s the key?
Don’t take hearing “No” personally. It’s business.
I went back to several funds that passed on us (including the one I mentioned above) when I was raising our next round of funding. Most of the funds passed a second time.
However, there were funds that passed the first time that did a serious deep dive the second time around. That’s why you go back to funds that passed the first time.
Many times the reason a fund passes has nothing to do with your company. For example, maybe the partner has already done two deals in the last couple months and has no capacity for another deal.
Or maybe you came in late in the fund’s life cycle, so they didn’t have money to allocate for new investments. Now, two years later, they’ve raised a new fund and the timing is perfect.
You have to meet with the right VC partner at the right time.
We had already had 63 investors pass on us when I decided to contact “Raul” at “Donald Ventures”. DV is a well known Sand Hill Road VC fund.
Two other partners had already turned us down including Donald himself. But Raul was new to the fund. And Raul was an extremely successful investor in our space (semiconductors).
Raul responded with 24 hours that he would like to arrange an introductory call. Two meetings later, I was across the table from Raul and Donald pitching our company. By Friday we had a term sheet for $12M.
The moral of the story is when you hear an investor pass, that is the investor passing at that time on your company, not forever. That’s why going back to investors that passed on you should be part of your fund raising strategy.